Recently, I’ve been watching a lot of House Hunters thanks to the sub-zero temperatures in New England that have kept most of us inside for days. The show goes the same way every single episode. The individuals or couples never really like the three houses they must choose from, and the real estate agent looks like they want to scream.
With seemingly endless budgets (that no one ever sticks to), I’m always left wondering why the people on the show don’t just build their own houses. That way they can have that modern, yet somehow still Victorian house that they really want.
Yes, building a house sounds expensive. But is it any more expensive than buying one in today’s high-priced housing market? Today, we take a look at that question. The short answer, as with most things is: It depends.
It depends on the house and your budget
Obviously, if you’re in the market for a $500,000 house, saving money isn’t your main concern. But, in today’s market, you’ll be hard pressed to find a house that needs minimum fixing for under $150,000. And that’s in an area where homes are more affordable.
However, if you do it right, you can build a home all on your own (or maybe with a little help) for under $100,000. There are just a few things you need to think about.
You need to think about land
When you build your own home, you need to have somewhere to put it. That means buying land. Obviously, buying a lot of land will be more expensive, but in rural parts of the country, you can buy a decent amount of land fairly cheaply. For example, in my home state of Maine, you can get a few acres for anywhere between $20,000-$50,000.
Don’t have that much, or saving it to actually build your home? Don’t worry, there are land loans you can take out to help you purchase the perfect spot for your home.
Personal loans are the simplest way to borrow money for the purpose of construction. Of course, the better credit you have, the better your rates will be.
It’s important to note that you shouldn’t take out a personal loan if you don’t think you’ll be able to pay it off on time. Personal loans aren’t the worst form of debt, but they can be a sinkhole if you start missing payments.
There are lots of great companies out there willing to lend money. We recommend using Fiona (formerly Even Financial) because Fiona is a loan aggregator – they search through the available offerings and present you with the best loan in terms of rate etc for your personal needs.
These loans allow you to buy land and build a home. They’re actually more similar to a line of credit rather than a mortgage. The loan intends that you only use the line of credit when you need it and only pay interest on what you use.
Loans typically last one year, or whenever the construction is done. After that, you’ll refinance to a more traditional loan (i.e. a mortgage).
You can use the loan to buy land, pour a foundation, buy materials to build your home, etc. You’ll need to decide what you’ll use it for before you apply for the loan as the bank will need to approve your construction plans.
Your best bet is to look at local credit unions that are used to giving out loans in the area. They’ll be able to determine how much you’re likely to need.
A note: Banks are less willing to lend to those who will be building their own home, since they think it’s easier for you to go off course if you’re also maintaining a full-time job.
Raw land loan
This type of loan finances land that doesn’t come with utilities already built in (you’re more likely to get approved for land with utilities).
These loans have a higher down payment (up to 50%) because they’re riskier. Again, it’s best to go through a local bank that has dealt with land loans in your area—they’ll be more likely to approve you since they know what they’re getting into.
Putting your home on the grid
Here’s where things can get expensive. If you buy raw land (see above), you’ll need to add all the utilities yourself. Let’s go utility by utility.
According to Home Advisor: “The national average cost for septic tank installation is $5,462, with most homeowners spending between $2,738 and $8,186. The cost to install a 1,000-gallon tank, typically used for a three bedroom home, can range anywhere from $1,500 to $4,000, with the tank itself costing anywhere from $600 to $1,000.
That’s not terrible in the grand scheme of things, but it is a cost to consider. If you buy a fixer-upper with outdated bathroom fixtures, you’ll spend a big chunk renovating that as well—so this upfront cost isn’t terrible in comparison.
If you’re lucky enough to live in an area that doesn’t require a heating system, you’re one of the lucky ones. Although, you’ll still probably consider installing air conditioning—but that’s a little easier.
Installing a brand new furnace will cost you. Chances are, you’ll need to hire a professional to do this—and HVAC workers charge a lot these days (great for them, terrible for home-builders). With everything from a furnace to duct work, it can cost anywhere between a few thousand to $14,000 depending on the size of the home.
This will cost another few thousand dollars (or more). Again, you’ll likely need to hire a professional. Work with electrical companies closest to the site you want to build. Call around to all the electricians in the area and ask what it will cost for new construction wiring—get an estimate from each.
Do-it-yourself vs. hiring someone
If you can build your own home, or at least most of it, your labor cost will be substantially less than if you hired a company to do all the work for you.
If you’re not a part of the process at all and hire an outside company, building a new home will likely run you just as much, if not more than buying a home already built.
Prefabricated homes will cost you a little less, but you’ll have less options when it comes to customizing your home.
Cheap house styles
Obviously, building a mansion will be more expensive than a traditional, smaller home. There are a few specific types of houses that cost far less to build, and sometimes even come in kits.
A-frames are my personal favorite style of house, so pardon my bias. Typically, a-frames are open-concept, and have lofts rather than closed bedrooms. And, for those who live in cold climates and hate shoveling off your roof—a-frames make that a whole lot easier. But are they cheap to build?
The answer to that is absolutely. Of course, if you want a grand a-frame that’s huge, it’ll cost more. If you’re willing to go real small, and are willing to do most of the work yourself, you can build an a-frame that will hold up well, for just $1,200. Luckily, a-frames are pretty simple to build—which contributes to some of their popularity.
I’ve written on the potential savings that tiny houses offer before. Simply put—tiny houses are cheaper to build because, well, they’re smaller. That means less materials, less hours to pay builders, and, potentially no foundation.
But, be wary, not everyone can stomach living in a tiny home—no matter how much it offers in savings. With that being said, what’s great about tiny homes is the growing community and their relatively simple design (although there are some incredibly expensive and fancy tiny houses).
There are tons of designs you can find for free online, or for a small fee. There are even companies that build and deliver your tiny homes—but that’ll cost you.
Tread lightly when it comes to fixer-uppers. Many people buy them because they’re cheap, but then they end up with a headache of problems they didn’t budget for.
It’s vital that you hire a good inspector to take a look at the home before you buy it.
Here are a few things you’ll want to stay away from when it comes to fixer-uppers, or else you’ll be paying a lot to get a livable home.
- Watch out for cracked, or falling down foundations
- Look for a home with good utilities. It’ll be pricey to hook up electric and septic if the house doesn’t come with it
- The roof, windows, and siding are the easiest fixes, so don’t worry if the outside of the home looks a little rough
Live off the grid
If you want to go even more intense than a tiny house, consider living off the grid. I watched a documentary recently called Life Off Grid, about a host of people who live in different parts of Canada all off the grid. The price of building their own homes ranged from $1,000-$60,000.
Some of the houses were far from beautiful, but they did the trick—which is all that seemed to matter to each individual.
What living off grid means is creating your own form of energy, water, and heat. This means you’re not paying someone to connect you to electric grid of whatever town you live in. But, you can’t just live in the woods with no heath, water, or electricity…well you could, but it would get old real quick. So, what do you do?
- Solar panels—These aren’t cheap upfront (costing a couple thousand to $14,ooo). But in the long run, they’ll save a ton in electrical costs. Plus, if you’re saving on the cost of building a home, this is the best place to spend a little extra money. Also, you can get tax credits if you use solar panels!
- Composting toilets—Yes, composting toilets sound gross, but you do get used to them. They’re environmentally friendly and, compared to the thousands you’ll pay to get a septic system installed, you can get over the gross factor.
- Generators—If you live off grid, you need a generator. Plain and simple. If your other power sources fail, you’ll need something to at least run heat if you live in a cold area. There are plenty of generators for just a few hundred dollars. It’s actually better to have more than one.
- Wind turbines—This is another alternative energy source. You can buy very cheap turbines that you can easily set up yourself. Although, don’t count on this as your only source of energy. In the documentary I mentioned above, wind energy accounts for just 10% of many people’s power source.
So, does it cost more to build a home?
That, of course, depends on the size and area you want to build in. Building a small home in a rural area can definitely save you money.
However, the only way to know is to determine how much utilities will cost—which is the biggest consideration when building a house. In short, do your research before you make any decisions.
At the end of the day, it depends on how much work you’re willing to do yourself. If you can cut out construction costs, you’ll really save.